You’re Wrong Elon:
Social Security’s Not The ‘Ponzi Scheme’,
The ‘Unrealized Gains’ Tax Loophole Is
– OpEd
“At current interest and tax rates, it is far cheaper to borrow against the value of one’s shares than to sell them and pay taxes on the gains.”
“Numbers don’t lie.” That is–until they do. Numbers can lie–when they’re used to justify the illegitimate tax loophole known as ‘unrealized gains.’ https://www.nbcnews.com/business/taxes/harris-plans-tax-unrealized-stock-gains-only-people-100-million-rcna168819 Elon and fellow billionaires are defending the ultimate tax ‘cheat’ (that happens to be technically ‘legal’), which allows them to ‘borrow’ ungodly amounts of money, live like kings off of that borrowed money–while paying next to nothing in taxes on these obscene levels of wealth. But the scam doesn’t stop there. These billionaires get to declare these loans as a loss and a tax break. They most often ‘borrow’ against the estimated value of their assets–usually stocks, using them as collateral for the banks. This strategy is known in the banking industry as ‘pledging.’ Forbes has compiled a list of the 400 most frequent billionaire pledgers–and Elon tops the list.
Elon and his fellow perps do this, all the while planning to steal Social Security by setting up a ‘cat food commission’ to privatize the only retirement most Americans will ever see. Elon and his tax perps are fine with Grandma eating cat food–as long as they can keep their ill gotten gains, at the real taxpayers’ expense.
Who are these questionable billionaires doing all this quasi-fraudulent pledging? According to Forbes, our ‘first buddy’, ersatz ‘co-president’ Elon Musk tops the list. https://www.forbes.com/sites/johnhyatt/2021/11/11/how-americas-richest-people-larry-ellison-elon-musk-can-access-billions-without-selling-their-stock/?sh=97dbb3823d4e
So how does this all too real ‘Ponzi’ scheme work and why was it legalized? How can the world’s wealthiest people ‘borrow’ against their publicly traded stock while evading the capital gains tax–legally? https://www.designgurus.io/answers/detail/who-owns-tesla (And for the record, it’s not just Elon taking advantage of this real Ponzi scheme. There are some 560 corporate board directors and executive officers that use this ‘pledging’ system as well). Forbes cited the average pledge amount to be some $427 million, with the “aggregate value” of pledged shares to constitute approximately $239 billion as documented in a report from Audit Analytics, a “provider of audit, regulatory and disclosure intelligence.” https://www.forbes.com/sites/johnhyatt/2021/11/11/how-americas-richest-people-larry-ellison-elon-musk-can-access-billions-without-selling-their-stock/?sh=97dbb3823d4e
It should also be noted that Elon’s share of pledged stock assets via his Tesla stock, constitutes some approximate …”47% of that aggregate pledged share value,” according to John Hyatt, writing for Forbes. https://www.forbes.com/sites/johnhyatt/2021/11/11/how-americas-richest-people-larry-ellison-elon-musk-can-access-billions-without-selling-their-stock/?sh=97dbb3823d4e Forbes has noted that this data compiled on Nov. 5th, 2024 does not reflect the severe drop in value of Tesla shares.
So, if these billionaires use the estimated value of their privately owned stock as collateral for these loans; what happens when the stock loses value? What risk do these pledged loans pose for the economy in general? If these loans are so safe, then why do larger corporations refuse to allow them? Proxy advisory firm, Institutional Investors Service (ISS) provided data on corporate practice regarding these billionaire loans made possible by pledged private stock shares. The report revealed that: “Over two-thirds (68.4%) of S&P 500 companies ban all company employees and shareholders from pledging shares for debt, 22% prohibit pledging but with exemptions for certain individuals, and only 3.4% fully permit it.” https://www.forbes.com/sites/johnhyatt/2021/11/11/how-americas-richest-people-larry-ellison-elon-musk-can-access-billions-without-selling-their-stock/?sh=97dbb3823d4e Jun Frank, an executive director of ISS’ corporate solutions group relayed this concern to Forbes: “When executives or directors have a significant percentage of their equity pledged, it creates a concern from the investor perspective.” https://www.forbes.com/sites/johnhyatt/2021/11/11/how-americas-richest-people-larry-ellison-elon-musk-can-access-billions-without-selling-their-stock/?sh=97dbb3823d4e
So what are the concerns and how do they affect the overall value of a company? Forbes published:
“Those concerns include margin calls: forced sales of pledged shares that can sink a company’s stock price, which risks cascading into a broader, panic-induced selloff. An example: Green Mountain Coffee Roaster’s founder Robert Stiller borrowed against his company shares to fund an increasingly extravagant lifestyle, rather than sell shares. That worked fine when the share price was rising but quickly unraveled after a short-seller called into question its accounting in May 2012. The former billionaire was forced to sell 5 million shares, worth $126 million, in one day to cover margin calls on pledged Green Mountain stock. He was then removed as Chairman of the Board.” https://www.forbes.com/sites/johnhyatt/2021/11/11/how-americas-richest-people-larry-ellison-elon-musk-can-access-billions-without-selling-their-stock/?sh=97dbb3823d4e
Now Elon and his fellow billionaire bandits can make whatever asinine claims they want about this practice, but the numbers clearly show that when the stock price falls, all investors lose value. This loss of stock value doesn’t merely affect these vile billionaires. It hurts those whose retirement is funded by Social Security and a 401K, or those who have traditional pension plans that invest in the stock market. In short, these billionaire bandits are playing Russian Roulette with the value of their pledged stock in order to evade paying capital gains tax, using these collateralized loans. Subsequently, the rest of us suffer when those stocks eventually sink. Pension plans, municipalities that depend on the commerce generated from these corporations, employees of these corporations all suffer so billionaires like Elon can evade paying capital gains taxes. In terms of fiscal responsibility, these pledged loans represent a ‘weapon of mass fiscal destruction’ so how did this legalized tax evasion evolve?
ProPublica report exposed the ‘legal’ tax cheats…
In 2021, ProPublica published an expose on America’s ‘legal’ tax cheats, aptly titled: The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax. https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax Written by Jesse Eisinger, Jeff Ernsthausen and Paul Kiel; this report exposed the actual, technically ‘legal’ ‘Ponzi scheme’ of tax evasion by the billionaire class. ProPublica has been criticized by the billionaires and their attorney enablers for publishing private tax information in violation of federal law.
https://www.propublica.org/article/why-we-are-publishing-the-tax-secrets-of-the-001 Propublica answered this accusation writing that while… “A federal law ostensibly makes it a criminal offense to disclose tax return information. But we do not believe that law would be constitutional if applied to bar or sanction publication of a story in the public interest when the news organization did not itself remove the information from the control of the IRS or solicit anyone else to do so – as we did not.” https://www.propublica.org/article/why-we-are-publishing-the-tax-secrets-of-the-001
ProPublica rightfully argued that using information provided by a whistleblower that exposes criminality or public detriment supersedes alleged privacy rights. ProPublica also explained further that…”The consequences of allowing the most prosperous to game the tax system have been profound. Federal budgets, apart from military spending, have been constrained for decades. Roads and bridges have crumbled, social services have withered and the solvency of Social Security and Medicare is perpetually in question.” https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax
Exactly how many planes have to crash before we demand a full staff of well rested, air traffic controllers? How many bridges have to crumble during rush hour due to either a collision with a barge or basic lack of maintenance? CNN reported that “1 in every 13 bridges in America is in ‘poor’ condition. https://www.cnn.com/2024/03/30/business/americas-bridges-climate-infrastructure/index.html This systemic ‘legal’ tax evasion by the billionaire class is a major contributing force to the crumbling devastation of our national infrastructure.
This tax evasion is not merely about infrastructure deterioration; it is an issue of justice. The ‘unrealized gains’ tax loophole that allows the rich to both claim actual wealth gains to serve as collateral for even obscenely larger loans–also permits the rich to claim a tax deduction. Exactly how can stock valuations serve as both a declaration of wealth collateral tangible enough to justify bank loans, while also evading the capital gains tax? The corporate law shysters hide behind the technical ‘legality’ of this unjust rule, while the public suffers.
USC law school professor Edward McCaffrey–”Buy, Borrow, Die”–aka the rich evade taxes…
Edward McCaffrey is a tax law professor at the USC Gould School of Law. He defended this system of technically ‘legal’ tax evasion by the rich. Incredulously, McCaffrey didn’t just defend this unjust system; he viscerally objected to calling out this practice as immoral or unethical. (Apparently, McCaffrey is primping to be Elon’s next ‘fiscal’ prom date).
To quote McCaffrey:
“It’s perfectly legal, and it’s a little hard to say it’s immoral. Like, it’s immoral to own a growth stock? It’s immoral to borrow money? So the question is, why would anybody not do it?” https://www.forbes.com/sites/johnhyatt/2021/11/11/how-americas-richest-people-larry-ellison-elon-musk-can-access-billions-without-selling-their-stock/?sh=97dbb3823d4e
Suffice to say, that McCaffrey is responsible for coining the term… “Buy, Borrow, Die”, which does truthfully state how the very rich evade taxes–legally. While technically ‘legal’, these strategies are unethical, and yes Professor McCaffrey, possibly immoral. In fact, McCaffrey’s specious claims sets up the argument for rebuttal quite efficiently. Setting aside the arrogance and cruel indifference of McCaffrey’s claims; the systemic avoidance of public duty in favor of obscene profit for a few is immoral. (There’s a reason why the Bible stated how…”…It is easier for a camel to go through the eye of a needle, than for a rich man to enter the kingdom of God.” Matthew 19:24) https://biblehub.com/matthew/19-24.htm
Washington Center for Equitable Growth offers rebuttal…
First let’s speak to the legal and secular arguments regarding equity in taxation. Edward Fox and Zachary Liscow published a study on closing the ‘billionaire borrowing loophole’ for The Washington Center for Equitable Growth. (Note: this source is ‘all about’ diversity, equity and inclusion. You can see the phrase ‘equitable growth’ in their name. SInce these are now censored terms, I want to use them even more). Their study, titled: “No More Tax-Free Lunch for Billionaires: Closing the Borrowing Loophole,” exposes this unethical practice for the technically ‘legal’ cheat that it has become. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4716197 The authors’ credentials are impressive. Edward G. Fox (edfox@umich.edu) is a professor at the University of Michigan Law School, and Zachary Liscow (zachary.liscow@ yale.edu) is a professor at Yale Law School. Their argument for closing this loophole would implement a ‘borrowing tax’ for the super rich.
They explain in their paper how the ‘unrealized gains’ rule works. To quote:
“The rule is based partly on the notion, correct or incorrect, that gains aren’t real until they become cash. But that argument does not apply when billionaires borrow against their gains and use the money.” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4716197
The authors use the example set by billionaire Larry Ellison, who is one of the top ‘pledgers’ of stock. “Ellison hasn’t just gotten richer on paper when he borrows against his stock to buy a Hawaiian island; he’s used that income just as if he’d sold the stock.” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4716197
Look at that last phrase: …”he’s used that income just as if he’d sold the stock.” That’s key to this argument. If the use of these obscenely monstrous loans, secured by stock as collateral, serves in the same capacity as cash obtained from a sale of that stock, then it’s a gain that should be taxed. After all, isn’t the tax writeoff based on the idea that the ‘gain’ hasn’t been ‘realized’? If the loans are used as wealth and then generate more wealth, then this same wealth has been ‘realized.’ You can’t have it both ways, yet it gets worse. To quote from the paper:
…”Indeed, under current law, Ellison – despite using the stock appreciation to purchase his island – will never pay income tax on those gains if he holds the stock until his death. This is a tax avoidance strategy known as “buy, borrow, die,” and it can allow the wealthiest Americans to live lavishly while paying little income tax.” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4716197
Sorry, Professor McCaffrey, but this ‘legalized’ Ponzi scheme is highly unethical and immoral in terms of human cost to our society in general.
True tax rates of billionaires are obscenely low …
Once again, ProPublica conducted an analysis of the ‘true’ tax rates paid by the billionaire class using IRS data as part of their series, The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax. https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax The report conducted a detailed comparison of actual taxes paid by the 25 wealthiest people each year and the estimated wealth growth for that same time period. The general estimate of wealth was reported by Forbes. https://www.forbes.com/billionaires/ The results were termed the ‘true tax rate’ and the results were obscene.
ProPublica reported:
“The results are stark. According to Forbes, those 25 people saw their worth rise a collective $401 billion from 2014 to 2018. They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That’s a staggering sum, but it amounts to a true tax rate of only 3.4%.” https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax
Warren Buffett…tax evader…
ProPublica also ‘outed’ liberal billionaire Warren Buffett, whose wealth rose some $23.4 billion between 2014 to 2018. IRS data revealed that Buffett paid $23.7 million in taxes, which amounts to a ‘true tax rate’ of a mere 0.1%, …”or less than 10 cents for every $100 he added to his wealth.” https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax
The utter injustice of this skewed tax system is obvious. In an age where the paltry benefits paid to lower income Social Security recipients is taxed; we have billionaires gleefully (and legally), evading paying their fair share.
Jeff Bezos… tax evader…
Another tax evader, (technically legal–but it shouldn’t be), is Jeff Bezos. In 2007, Bezos paid $0 in federal taxes even though his stock more than doubled in value for the same year, according to Forbes. And yet, the picture gets worse. ProPublica obtained complete data documenting the years from 2006 to 2018 where Bezos saw his wealth increase by some $127 billion, (as reported by Forbes), yet he only claimed $6.5 billion in income to the IRS. It should be noted that while Bezos did pay $1.4 billion in federal taxes, this represents a mere ‘true tax rate’ of 1.1% when considering his increased wealth for those years. https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax
The poor are audited more frequently than the wealthy…
Add to this unethical system, the foul fact that lower income people are more apt to be audited by the IRS than these uber wealthy, billionaire ‘welfare’ queens. https://projects.propublica.org/graphics/eitc-audit Once again, ProPublica has done the journalistic heavy lifting. According to actual IRS data, an individual making $20,000 annually is more likely to be audited than someone making in excess of $400,000. ProPublica reported:
“If you claim the earned income tax credit, whose average recipient makes less than $20,000 a year, you’re more likely to face IRS scrutiny than someone making twenty times as much.” https://www.propublica.org/article/earned-income-tax-credit-irs-audit-working-poor
The piece explained how …”a benefit for the working poor was turned against them.” https://www.propublica.org/article/earned-income-tax-credit-irs-audit-working-poor
This wholesale tax evasion by the .001% is an issue of ethics. While the billionaire class grows richer, the working poor and middle class are struggling just to keep a roof over their heads and their kids fed. Tax policy should reflect equitable sacrifice across all economic levels. The ‘unrealized gains’ loophole ensures that equitable sacrifice remains a cruel joke–aka the ultimate ‘Ponzi scheme.’ Essentially, these billionaires obtain ungodly loans by using their stock holdings as collateral. They then live off of these loans, have the use of this profit, while claiming a loss. If you have the use of this money, (whether it originated from a loan or not), and use that loan money as currency, then you have a capital gain or in Elon’s case, …”he’s used that income just as if he’d sold the stock.” And that strikes at the core essence of premeditated fraud. The issue isn’t merely technical ‘legality’, but rather a tax code that encourages such ‘legalized’ fraud.
Billionaire ‘mafia’ is built on lies and tax deceit…
Elon Musk has built an aura of infallibility around himself, and so have various other billionaires. That aura is just another lie. The billionaire mafia has pushed the trope that only ‘they’ have the answers to society’s ills. That is also a lie. The billionaire mafia have increased their already obscene wealth at an exponential level by utilizing a tax code that encourages fiscal behavior that is not only unethical–it is dangerous. All it would take to crash this ‘monopolized economy on steroids’, is the devaluation of billionaire stock. Nothing else.
Conclusion:
So, while arrogant Elon has repeatedly called out Social Security as a “Ponzi scheme”, he massively participates in one of the largest “Ponzi schemes” out there, namely the ‘legalized’ tax evasion fueled by pledged stock loans. Does Elon care that Social Security is the only retirement most Americans will ever see? Doubtful. But that doesn’t matter. Elon is using his pimply faced “Nerd Reich” to ransack our Social Security using Wall Street privatization as his unethical fiscal battering ram. https://www.thenerdreich.com/about/
Elon’s “Nerd Reich” of adolescent tech terrorists is celebrating the idea of a Social Security ‘cat food commission,’ which would starve what the Nazis termed as “useless eaters.” https://journals.sagepub.com/doi/10.1177/00224669020360030601 So, while Elon pontificates on Joe Rogan about Social Security as a ‘Ponzi scheme’, we must be reminded that the billionaire class are the true scam artists hiding behind technical ‘legality’.
Or to put it more simply, as Dr. Martin Luther King, Jr. plainly stated: “We should never forget that everything Adolf Hitler did in Germany was “legal…” https://www.africa.upenn.edu/Articles_Gen/Letter_Birmingham.html
Jeanine Molloff
Jeanine Molloff is an independent journalist. Molloff is a veteran urban educator specializing in communications disorders. She moonlights as a political commentator on various issues including civil liberties in an age of ‘terrorism’, ecological justice, collateral damage in war zones, economic equity and education.
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